The Best Way to Invest in the Tablet Market

Tony Sagami

My kids have been bugging the heck out of me to buy them an iPad. Even though they already have an iPod, an iTouch, and an iPhone, they just have to have an iPad.

A lot of other kids (and adults) feel the same way. I say that because Apple announced it has sold more than 25 million iPads since they hit the market in April 2010.

It’s no wonder that Apple bought $17.5 billion worth of chips in 2010, according to computer watchdog iSupply. That’s close to double the $9.7 billion worth it bought the previous year. Yup, business is booming at Apple.

Portable laptop computers changed the dynamics of the computer industry, but tablet computers may turn the industry on its ears.

Hewlett Packard, for example, is the largest computer company in the world, but it complained that sales dropped by 23% in the first quarter and it slashed its full-year 2011 sales forecast by a whopping $1 BILLION!

Research firm IDC lowered its 2011 estimate for growth in PC sales shipments from its February estimate to 4.2% from 7.1% because of competition from tablets and smartphones. Clearly, tablet computers are where the action is.

Hewlett Packard sees the light, and is jumping on the tablet bandwagon with plans to release its new TouchPad tablet computer in July.

Motorola and Research in Motion are already in the market with their Xoom and PlayBook tablets.

Dell too is eager to grab a piece of this multi-billion market and is eager to launch its Streak 10 Pro tablet later this summer.

However, Dell is going to launch its innovative 10-inch tablet in China sometime this summer but not in the United States until early 2012.

Yup, Dell is going to launch in China months ahead of entering the U.S. market! That should tell you volumes about the potential of the Chinese market.


Dell is launching the Streak 10 Pro tablet in China this summer.

“China is the largest in the emerging market category and the second fastest-growing in the emerging market category. And China is also our second largest market right after the U.S. The China market in units may cross the U.S. in the next couple of years,” said Amit Midha, chairman of Dell’s China division.

Dell isn’t new to China either. It already has about 10,000 stores that sell Dell and 2,000 service centers where customers can bring Dell products in China.

What is amazing is how a sector of the computer market that didn’t exist a year ago is suddenly selling tens of millions of units and likely exceed 100 million units within the next few years.

How can you invest in the tablet market? You could, of course, invest in Dell’s tablet competitors like Motorola Mobility Holdings (NYSE:MMI), Research in Motion (Nasdaq:RIMM), or Hewlett Packard (NYSE:HPQ). Or invest in Apple (Nasdaq:AAPL), the innovator and kingpin of the tablet world.

What is there to like about Apple?

iPad: Thanks to zooming iPad sales, Apple was able to grow its revenues by 76% and profits by 83% over the first half of fiscal 2011 compared to the same period a year ago. Apple’s momentum is picking up; not slowing down.

Apple in China

Apple opened its first retail store in Beijing in 2008 and now has four stores in China. Apple, however, plans on opening as many as 25 more Apple retail stores in China by the end of 2012. You know why? The four Apple stores in China are the highest grossing stores of the 323 Apple stores in the world.

Apple sold $2.9 billion worth of goods to Chinese consumers in 2010 but that number is expected to hit $9.4 billion this year.

iPhone: In Q1 (most recent reported quarter), iPhone sales increased by 113% globally and by 155% in the United States. Apple can thank the new Verizon deal for the boost, which will boost sales for a long time because a lot of Verizon customers will jump to iPhones as their contracts expire.

Mac: Due to the popularity of the iPad and iPhone, most people overlook the renewed success of the Macintosh computer division. While the rest of the PC world is struggling with weak sales and falling prices, Apple increased its Mac sales by 25% in the first six months of fiscal 2011.

iCloud: Those who pay attention to techie news are aware of Apple’s new iCloud service. The beauty of tablet computers is their portability, but that easy-to-tote size comes at the cost of storage. Cloud computing is a web-based platform that will allow users to store data/content/files on a remote server instead of on their own hard drive.

You’re going to hear a lot more about cloud computing in general and iCloud computing in particular. There are some great reasons that cloud computing will change the way all of us use our computers. Here are a few:

  • Easier maintenance. Cloud computing allows you to synchronize data across their many devices, including the cell phone, home computer, business computer, MP3 players, and/or tablet computers.
  • Better security. The remote cloud server will have an army of dedicated nerds continually working to thwart viruses and hackers.
  • Better backup. All your data will be securely stored in a remote location. No more backing up your data. No more tragic losses of files if your computer crashes, breaks or is stolen. Think of it as a disaster-recovery service.

How much is Apple going to charge for its iCloud service? NOTHING. Apple is making its iCloud service FREE, and I’ve always said that free is a very good price.

Is Apple a buy today? Its all-time high was $364 in March but is now trading in the $320 range. Many people think Apple is too expensive simply because it is a $300 stock, but it really isn’t that expensive by most traditional metrics.

Apple sells for 15 times trailing earnings and only 11 1/2 times forward earnings. That’s pretty reasonable for a company that grew its sales by 82% and its profits by 92% in the most recent quarter.

That gives Apple a PEG (price/earnings to growth) ratio of 0.63. Any PEG number less than 1 means that you are getting a lot of growth bang for your investment buck.

Plus, Apple has an amazing $29.2 BILLION in cash sitting in the bank, which works out to about $31 per share of cold hard cash.

I’m not suggesting that you rush out and buy Apple stock tomorrow morning. As you know, timing is everything when it comes to investing, so you should always wait for stocks to go on sale before jumping in or wait for my buy signal in Asia Stock Alert.

As always, you need to do your homework and decide whether any of the securities I talked about in this column are appropriate for your personal situation and financial goals.

Lastly, one of my children has a birthday in August, and I suspect that all of them will have an iPad by Christmas because I won’t be able to stand the relentless begging for much longer.

Best wishes,

Tony

P.S. If you are looking for more specific buy/sell recommendations on my favorite Asian stocks, please consider a subscription to my Asia Stock Alert for only $199 a year. I think it may be the best investment you’ll ever make.


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Posted 06-17-2011 2:51 PM by Tony Sagami